What insolvency procedures are available in the jurisdiction? Does management continue to operate the business and/or is the debtor subject to supervision? What roles do the court and other stakeholders play? How long does the process usually take to complete?

Restructuring & Insolvency (2nd Edition)

Indonesia Small Flag Indonesia

IBL provides 2 (two) types of court sanctioned of insolvency proceedings that are applicable to Indonesian individuals, limited liability companies, limited partnerships, namely: (a) Bankruptcy Proceedings; and (b) PKPU Proceedings. Each procedure can be initiated by either the debtor itself or by its creditors.

The principal and conceptual difference between the two is that Bankruptcy Proceedings aim at liquidation and the PKPU Proceedings aim at continuation. However, the two are not principally opposed and can be used as needed by the situation at hand: Bankruptcy Proceedings are often used for reorganization of business by way of restart (if a composition plan is accepted by the creditors under voting mechanism and ratified by the Commercial Court) and PKPU Proceedings may result in liquidation (if the composition plan is rejected by the creditors under voting mechanism or fails to secure the Commercial Court’s ratification).

In Bankruptcy Proceedings, the affairs of a bankrupt debtor are handled and managed by one or more court appointed receivers. The directors of the debtor lose their power to manage the bankrupt debtor’s affairs and estate as such power is given to the receiver. The receiver is subject to the supervision of the court-appointed supervisory judge.

Unlike in the Bankruptcy Proceedings, the affairs and the estate of a corporate debtor in PKPU Proceedings are handled and managed jointly by the director(s) of the company and one or more court appointed administrators. The administrator is subject to the supervision of the court-appointed supervisory judge. In this regards, the debtor will still be entitled to manage and dispose of its assets, but only jointly with the administrator. The debtor cannot conduct any management or ownership actions over all or part of its assets without the approval of the administrator. Any violation of this provision will entitle the administrator to take any actions required to ensure that the debtor’s assets are not jeopardized by the debtor’s actions. The performance by the debtor without the administrator’s consent of the debtor’s obligation arising after the commencement of the PKPU proceedings, can only be imposed on the debtor’s assets to the extent that the debtor’s assets gain advantage/benefits from this performance.

Unrelated to insolvency issues there is another proceeding that is recognized by Indonesian law, namely: the dissolution and liquidation proceedings regulated by Law 4/2007. This liquidation proceeding is different from the Bankruptcy / PKPU Proceedings in that it is a company/shareholder driven irreversible process which does not cater for the possibility of the debtor’s restructuring and has no creditor vote.

With regard to the roles and involvements of the Commercial Court and other stakeholders play, it can be summarized into the following:

The Commercial Court has the following roles and involvements:

A. In Bankruptcy Proceedings

  • grant or reject the bankruptcy petition being filed;
  • declare the debtor bankrupt;
  • appoint, add and/or replace the receiver;
  • adjudicate the dispute regarding claim verification;
  • adjudicate the creditor’s objection to the list of proceeds distribution
  • terminate the bankruptcy proceedings;
  • determine the receiver’s fee;
  • adjudicate the preferential transfer/claw back (actio pauliana)claim filed by the receiver;
  • adjudicate the receiver’s claim against the board of directors of the bankrupt debtor that is/are fault and negligent in causing the bankruptcy estate insufficient to pay all of the bankrupt debtor’s obligations.

B. In PKPU Proceedings

  • grant or reject the PKPU petition being filed;
  • declare the debtor in PKPU;
  • appoint, add and/or replace the administrator;
  • grant or reject the extension of the PKPU period;
  • determine the administrator’s fee

In both Bankruptcy Proceedings and PKPU Proceedings

  • appoint the supervisory judge;
  • ratify or reject the ratification of the approved composition plan;

The receiver has the following roles and involvements (in Bankruptcy Proceedings):

  • manage and maximize the bankruptcy estate (e.g.: collecting claims);
  • continue the debtor’s business;
  • verify the claims of the creditors (and prepare the list of creditor with its ranking) against the debtor’s book;
  • verify the assets of the bankrupt debtor;
  • facilitate the composition plan discussions and lead voting process;
  • liquidate and settle the bankruptcy estate, if the bankruptcy estate is already in the state of insolvency (e.g.: through public auction or private sale);
  • distribute the liquidation proceeds to the creditors, in accordance with the creditors ranking under the prevailing laws and regulations;

The administrator has the following roles and involvements (in PKPU Proceedings):

  • manage the debtor’s estate and continue the debtor’s business together with the director of the debtor;
  • verify the claims of the creditors (and prepare the list of creditor with its ranking) against the debtor’s book;
  • verify the assets of the debtor;
  • facilitate the composition plan discussions and lead the voting process;

The supervisory judge has the following roles and involvements:

  • supervise the receiver/administrator in performing its tasks;
  • approve certain actions of the receiver which is required by IBL (e.g.: private sale of the bankrupt estate);
  • decide on the claim verification dispute for the purpose of voting the composition plan.

Either the bankrupt debtor or the debtor in PKPU has the following roles and involvement:

  • provide the receiver or administrator with the relevant information and documents;
  • verify the claims being submitted by the creditors;
  • submit the composition plan to be negotiated with the creditors;
  • negotiate with the creditors on the terms of the composition plan.

The creditors have the following roles and involvement:

  • submit and verify their claims to the receiver/administrator;
  • form creditors committee;
  • negotiate with the debtor on the terms of the composition plan;
  • vote the composition plan.

With respect to the Bankruptcy Proceedings, IBL provides that the decision on the bankruptcy petition must be rendered by the Commercial Court within a period of 60 (sixty) days as of the date of registration of the petition. In practice however, the period that the Commercial Court takes in rendering its decision against a bankruptcy petition varies between 30 – 50 calendar days as of the registration of the relevant bankruptcy petition, depending upon the complexities of the case and the availability of the parties. The decision can be appealed to the Supreme Court in cassation not later than 8 (eight) days as of the Commercial Court’s decision is rendered (“Cassation Filing Period”). The Commercial Court Registrar must deliver the cassation petition dossiers to the Supreme Court within not later than 14 (fourteen) days as of the cassation petition is registered. Within not later than 60 (sixty) days after the cassation petition has been received by the Supreme Court, the Supreme Court must decide whether to affirm or annul/overturn the Commercial Court decision.

In limited cases, a case review (peninjauan kembali) appeal can be made against a final and binding decision in the form of either (i) the Commercial Court’s decision which is not appealed within the Cassation Filing Period; or (ii) the Supreme Court’s decision in cassation. A case review may only be filed to the Supreme Court based on the following grounds:

a. when there is any decisive evidence discovered subsequent to the date of the final and binding decision is rendered which at the time of the proceeding at the Commercial Court / Supreme Court level in cassation had not yet been found;

In this case, the case review petition can be filed within 180 (one hundred eighty) days as of the date when the relevant court’s decision being petitioned becomes final and binding.

b. if there is an obvious mistake or error made by the judges in the relevant decision.

In this case, the case review petition can be filed within 30 (thirty) days as of the date when the relevant court’s decision being petitioned becomes final and binding.

The Commercial Court Registrar must deliver the case review petition to the Supreme Court Registrar within 2 (two) days as of the date the case review petition is registered. The Supreme Court must render a decision within 30 (thirty) days as of the date the case review petition is received by the Supreme Court Registrar.

IBL however does not a fixed timeline on the Bankruptcy Proceedings following the issuance of a final and binding bankruptcy declaration. Based on practice, the timeline can be summarized into the following:

  • The deadline for the supervisory judge to render a decision to determine (i) the deadline for the creditors of the bankrupt debtor to submit claims; (ii) the deadline for tax claim verification; and (iii) the claim verification meetings: maximum 14 calendar days as of the bankruptcy declaration;
  • Within 5 (five) days after the date the supervisory judge renders its decision, the receiver must announce such dates to all known creditors by letter and publication in at least 2 (two) daily newspapers
  • The deadline the creditors of the bankrupt debtor to submit claims: based on practice, 2 – 8 calendar week as of the bankruptcy declaration;
  • The deadline for the claim verification meetings: based on practice, around 6 - 10 calendar week as of the bankruptcy declaration
  • The composition plan discussions: varies, may take few months (up to more than 5 months) before a voting on the composition plan is conducted.

Scenario A: the composition plan is approved by the creditors and ratified by the Commercial Court: The bankruptcy proceedings are terminated, and the timeline completed.

Scenario B: the composition plan is rejected by the creditors, or approved by the creditors but not ratified by the Commercial Court: the bankruptcy estate is declared in the state of insolvency and the timeline continues;

  • The process to liquidate the bankruptcy estate and to distribute the liquidation proceeds to the creditors in line with the prevailing laws and regulations up to completion: varied from 1 – 5+ years as of the state of insolvency, depending upon the complexities of the bankruptcy assets to be sold.

With respect to the PKPU Proceedings, IBL provides that the Commercial Court must make a decision on the PKPU petition within not later than either (i) 3 (three) days of it being filed for voluntary PKPU petition (i.e.: being filed by the debtor itself); or (ii) 20 (twenty) days of it being filed for involuntary PKPU petition (i.e.: being filed by the debtor’s creditor(s)). The decision being rendered by the Commercial Court in this case cannot be appealed. This rule does not prohibit any appeal being lodged. However, such an appeal normally will be rejected. If the Commercial Court approves the petition, the Commercial Court is required by law to grant the debtor a provisional PKPU for up to 45 days. The 45-day provisional PKPU may be extended up to maximum 270 days from the date the provisional PKPU is granted (and therefore becomes a permanent PKPU).

The same timeline element as those being described in the Bankruptcy Proceedings’ timeline mentioned above should also be applicable to the PKPU Proceedings (except for the composition plan discussions element, which period is much more limited). If the composition plan being submitted is rejected by the creditors, or is approved by the creditors but not ratified by the Commercial Court during the PKPU proceedings period, a bankruptcy declaration will be rendered and the bankruptcy estate is automatically declared in the state of insolvency. Then, the same timeline element under the Scenario B of the Bankruptcy Proceedings will apply thereafter.

Canada Small Flag Canada

The two main insolvency procedures are (i) a bankruptcy and (ii) a receivership.

Bankruptcy
Objective
An insolvent liquidation is commonly carried out as a bankruptcy under the BIA. In the context of a liquidation, the BIA is intended to provide for the fair distribution of the debtor's unencumbered assets among its unsecured creditors.

The right to file a claim and receive a dividend in the distribution of the proceeds derived from the liquidation of the bankrupt's unencumbered assets replaces all of the pre-bankruptcy remedies of the debtor's unsecured creditors. However, the bankrupt's secured creditors can also enforce their security outside of the administration of bankruptcy.

Initiation
When a debtor is insolvent, a bankruptcy can be initiated in three ways:

  1. the debtor voluntarily assigns itself into bankruptcy;
  2. the debtor is involuntarily placed into bankruptcy by its creditors; or
  3. the debtor becomes bankrupt as a result of the failure of the BIA Proposal (see Question 8).

If the debtor assigns itself into bankruptcy voluntarily, he can choose a trustee. However, if the debtor is involuntarily placed into bankruptcy, he will have one appointed for him.

For a corporate debtor, initiation also requires the company's board of directors to pass a resolution prior to the court approving the assignment into bankruptcy.

Substantive Test
The debtor is considered bankrupt when he:

  1. has debts of at least Can$1,000 owing to its creditors; and
  2. has committed an act of bankruptcy within the six (6) months prior to the application for a bankruptcy order, which may include having become insolvent and unable to meet its financial obligations generally as they become due.

Consent and Approvals
An involuntary bankruptcy is made by order of the court upon application by one or more creditors of the debtor. A voluntary bankruptcy is commenced by the trustee in bankruptcy selected by the debtor filing an assignment in bankruptcy with the Superintendent of Bankruptcy (that is, an independent government agency responsible for the supervision and integrity of the Canadian bankruptcy system).

Supervision and Control
Once the bankruptcy is effective, all of the debtor's property and assets vest in the trustee and the debtor ceases to have any control over its affairs. The trustee must be licensed by the Superintendent of Bankruptcy. In a corporate bankruptcy, the trustee:

  1. replaces the management of the corporation; and
  2. assumes full control over all of the debtor's property and assets.

Secured creditors retain their right to enforce on their security.

Protection from Creditors
Once a debtor has become bankrupt, all of the debtor's property, wherever located, vests in the trustee subject to the rights of secured creditors. The trustee then proceeds to administer the estate for the benefit of the bankrupt's unsecured creditors. The BIA provides for an automatic stay of proceedings once the bankruptcy has commenced. The debtor's unsecured creditors are prevented from:

  1. exercising any remedy against the debtor or its property; or
  2. commencing or continuing any action, execution or other proceeding for the recovery of a claim provable in bankruptcy.

The bankruptcy stay does not affect secured creditors, who are generally free to enforce their security outside of the liquidation process provided they do so in a commercially reasonable manner.

The law governing intellectual property licenses in a bankruptcy proceeding is unclear and licensees may lose their rights to use the intellectual property upon the bankruptcy of the licensor. The trustee-in-bankruptcy has the authority to disclaim executory contracts. Accordingly, the licensee may wish to have the license agreement deemed to be a non-executory contract in the drafting of the license agreement in order to prevent a subsequent trustee-in-bankruptcy from being able to disclaim the license agreement in the bankruptcy proceedings of the licensor.

Length of Procedure
Unlike a BIA Proposal, there is no specified timeline for bankruptcy proceedings (see Question 8, BIA Proposal).

Conclusion
The debtor's assets (after secured creditors have realized their security and after the payment of super-priority creditors) are distributed on a pro rata basis among the unsecured creditors in accordance with their proven claims. The bankruptcy concludes once the trustee has distributed all the proceeds realized from the sale of the property and assets of the debtor to the debtor's creditors and the trustee has been discharged by the court.

Receivership
The BIA also provides for the enforcement of security and the appointment of receivers on a national basis. A secured creditor who plans to enforce its security on all or substantially all property and assets of an insolvent debtor must give prior notice of its intention to do so pursuant to section 244 of the BIA and then must wait ten (10) days after sending the notice before taking further steps, unless the debtor consents to an earlier enforcement at the time of the delivery of the 244 notice, unless the creditor is able to persuade the court that an “interim receiver” should be appointed.

Duties of Receiver Upon Appointment
Once the receiver is appointed the receiver must:

  1. give notice of its appointment to all creditors;
  2. issue reports on a regular basis outlining the status of the receivership; and
  3. prepare a final report and statement of receipts and disbursements when the appointment is terminated.

Appointment of a Receiver
A receiver or receiver/manager is appointed either:

(A) Privately, by a secured creditor. Where a security agreement provides for the private appointment of a receiver, the powers of the receiver must also be set out in the agreement. Unlike a court-appointed receiver (see below), a private receiver's loyalties lie with the appointing creditor, and the receiver will work to maximise recoveries for the creditor. Privately appointed receivers usually have broad powers, including the power to:

  1. carry on the business; and
  2. sell the debtor's assets by auction, tender or private sale.

Although private appointments can reduce costs and delays and provide the secured creditor with greater control over the realisation process, it is often advisable to obtain a court appointment. This is especially the case if:

  1. there are major disputes among creditors or with the debtor; and/or
  2. it is clear that the assistance of the court will be required throughout the receivership.

It is also often important to potential purchasers of the assets of the debtor from the receiver to have the protection of a court order approving the sale of assets.

In Québec secured creditors may not appoint private receiver. The only recourses available to hypothecary creditors and holders of prior claims are the four (4) recourses set out in the Québec Civil Code (see Question 2).

(B) By Court Order. The jurisdiction for a court appointment of a receiver is found in the applicable provincial judicature acts and rules for court proceedings (except Québec) and pursuant to section 243 of the BIA. A receiver can be appointed under the rules for court proceedings and applicable provincial judicature acts alone, but it is more common for the appointment to be made under both the BIA and the rules for court proceedings/judicature acts. A court appointment may be necessary if the debtor opposes the appointment of the receiver and will not give up possession of its property and assets to the receiver. In certain provincial jurisdictions, the courts will grant possession orders and affirm the appointment of a private receiver with powers as set out in the security documents, and thereby avoiding the requirement for a formal court appointment.

The court's appointment of a receiver usually begins with a secured creditor commencing an action or application against the debtor. The receiver is then appointed in a summary proceeding within the action or application. The order appointing the receiver usually follows a “model” Receivership Order, similar to the “template” CCAA Initial Order (discussed below, see Question 8). The Receivership Order typically:

  1. stays proceedings against the receiver and debtor;
  2. provides the receiver with control over the property and assets of the debtor;
  3. authorizes the receiver to carry on the debtor's business and to borrow money on the security of the assets; and
  4. ultimately authorizes the receiver to sell the debtor's property and assets with the approval of the court.

The Receivership Order also typically authorizes the receiver to commence and defend litigation in the debtor's name.

While the duty of a privately-appointed receiver is primarily to the appointing secured creditor (subject to a general duty to act in a commercially reasonable manner), the court-appointed receiver is an officer of the court and has a duty to protect the interests of all of the debtor's creditors. By the nature of its appointment, a court-appointed receiver may not be entitled to obtain an indemnity from the secured creditor who sought the appointment.

In Québec, the Code of Civil Procedure provides for the appointment of a “judicial receiver”, called a “sequestrator”, for the duration of any litigation. The court may, even on its own initiative, order the sequestration of disputed property if it considers it necessary to preserve the parties’ rights in the property, for example, in the case of an immovable left unmaintained. The sequestrator is then put in possession of the movable or immovable property in dispute for the duration of the litigation. As opposed to common law jurisdictions, this is rarely done in practice in Québec, but is available nonetheless in any litigation, if warranted, including in a litigation between a secured creditor and its debtor.

Germany Small Flag Germany

The German Insolvency Code provides a single procedure for both liquidation and restructuring measures. Insolvency proceedings generally comprise two stages: (i) the preliminary insolvency proceedings between the insolvency filing and the actual opening of insolvency proceedings by respective court order, and (ii) the opened insolvency proceedings.

These stages can be combined with several tools meant to facilitate restructurings: the debtor-in-possession (“DIP”) proceedings (Eigenverwaltung), the protective shield proceedings (Schutzschirmverfahren) and the insolvency plan proceedings (Insolvenzplanverfahren) (see Question 8).

Preliminary Insolvency Proceedings
The preliminary insolvency proceedings are initiated if a debtor or one of its creditors files for the opening of insolvency proceedings.

After the insolvency court examined the petition for admissibility and substance, the court will order the commencement of preliminary insolvency proceedings and take measures to protect the creditors against harm to the estate, primarily by (i) appointing a preliminary insolvency administrator or monitor (in the case of debtor-in-possession or protective shield proceedings), and (ii) preventing the debtor from transferring assets without the preliminary insolvency administrator’s consent.

The Federal Employment Agency (Bundesagentur für Arbeit) will cover employees’ wages for up to three months before the opening of insolvency proceedings – the so-called insolvency protection payments (Insolvenzgeld), and it is usually in the estate’s best interest to fully use these funds. Therefore, preliminary insolvency proceedings usually take up to three months (see Question 9).

Regular insolvency proceedings
After the preliminary insolvency administrator submits a report of the debtor’s state of affairs (inter alia confirming the insolvency and sufficient funds to cover the costs of the proceedings), the insolvency court will issue an order opening the regular insolvency proceeding. As of that point in time, the debtor is no longer entitled to manage and dispose of its assets. Instead, that power is vested in the (final) insolvency administrator, who is appointed uno actu and typically the preliminary administrator. The court also determines the date of the first creditors’ assembly (Gläubigerversammlung), which should take place within six to eight weeks after the opening of the insolvency proceedings.

At the first creditors’ assembly, the insolvency administrator will report on the debtor’s economic situation and its causes. He or she will assess the prospects (if any) of maintaining the debtor’s enterprise as a whole or in part, indicate the possibility of drawing up an insolvency plan, and describe how each solution will affect the creditors’ satisfaction. The first creditors’ assembly shall decide whether the debtor's enterprise should be closed down or temporarily continued. The assembly may commission the administrator to draw up an insolvency plan, and may determine the plan’s objective for the administrator. Unless insolvency plan proceedings are pursued, most proceedings result in the liquidation of the debtor’s assets, ideally by selling the debtor’s business as a going concern by way of an asset deal (Übertragende Sanierung).

In regular insolvency proceedings, it usually takes several years for the process of asset liquidation and distribution of the insolvency quota among the (unsecured) creditors to be completed.

Self-administration proceedings, protective shield proceedings and insolvency plan proceedings involve variations in the abovementioned processes. For more information, see Question 8.

South Africa Small Flag South Africa

Procedures:
The insolvency procedures relating to corporations are the winding-up of companies (and close corporations). As stated above, the terms ‘winding up’ and ‘liquidation’ are used in South African law to refer to a company or other corporate entity that has been placed into liquidation. A company may be wound up (1) compulsory by an order of the High Court on application to the court, usually brought by creditors in relation to an insolvent company or by shareholders in relation to a solvent company or (2) voluntarily by way of the passing and filing of a special resolution by the shareholders.

Management:
From the commencement of winding-up all the powers of directors cease, except in voluntary liquidation, if their continuance is sanctioned by the liquidator, creditors (in creditor’s winding-up) or shareholders (in a shareholders’ winding-up).

A company in liquidation is subject to supervision by the liquidator.

Court and stakeholder roles:

  • Applicants: Creditors, shareholders, the company, a business rescue practitioner or the Companies and Intellectual Property Commission may bring an application for compulsory winding-up.
  • High Court: The court’s involvement is required in respect of the initiation of compulsory liquidations. The courts will in addition play a role in the winding-up process (compulsory or voluntary) where the debtor was involved in pre-liquidation litigation proceedings, or if the liquidator needs to recover assets under clawback actions.
  • Affected persons: When an application is presented to the court, the applicant must furnish a copy of the application, and later of the winding-up order,¬ to (1) trade unions representing employees; (2) employees of the debtor; (3) the South African Revenue Service and (4) the debtor (if the application is not made by the debtor itself).
  • Master of the High Court: The Master fulfils an important administrative role in insolvency matters. The custody and administration of all documentation involving insolvency matters in the responsibility of the Master from the beginning of the application up to rehabilitation of the individual or deregistration of the legal entity. Furthermore, the Master plays an administrative role in the liquidation proceedings regarding, for example, the appointment and removal of the liquidator and giving directions to the liquidator if requested to do so.
  • Liquidator: After the winding up order has been made, the Master appoints a provisional liquidator of the debtor and he will hold office until the appointment of the liquidator. The primary task of the provisional liquidator will be to convene the first creditors meeting. The Master will appoint the person nominated at the first creditors meeting and shareholders meeting as the liquidator of the debtor. If these meetings appoint different persons the Master must decide whether to appoint one or both. A liquidator shall proceed to recover and reduce into possession all the assets and property of the company, apply the same so far as they extend in satisfaction of the costs of the winding-up and the claims of creditors.
  • Companies and Intellectual Property Commission: Voluntary winding-up is initiated by the passing and filing of a special resolution with the Companies and Intellectual Property Commission. It also plays a role in the deregistration of a company pursuant to liquidation.

Timing:
The liquidator must within three months of being appointed, submit a report to the general meeting of creditors dealing with specific financial and corporate matters relating to the debtor.

Within six months of his appointment, the liquidator must prepare and lodge with the Master a liquidation and distribution account (provided that the liquidator may also apply for an extension in this regard from the Master).

Once the liquidation and distribution account has lain open for the prescribed time and objections have been dealt within the prescribed manner, it is considered final and the liquidator must distribute the estate and any assets remaining thereafter must be distributed to the shareholders in accordance with their shareholding.

Liquidation normally takes between six to twenty four months (or longer). The exact length of the process depends on the nature of the matter, size of the estate, stakeholders involved etc.

Brazil Small Flag Brazil

Pursuant the BRBL, the insolvency may be voluntary or compulsory. Its main premise is that the debtor’s business is no longer economically available and, due to this, its liquidation will seek to optimize the productive use of the property, assets and productive resources of the business.

In the liquidation procedure an independent trustee is appointed by the Court (“judicial administrator” according to the Law), which must be a reputable professional — preferably a lawyer, economist, business manager or accountant — or a specialized legal entity. The trustee takes control of all the company`s affairs and its main obligation it is to collect all its assets to pay the debtor`s creditors according to the payment order provided by the BRBL.

The debtor forfeits the right to manage its assets or dispose them, however, the debtor, stakeholders and managers have the right to monitor the administration of the insolvency and request measures as may be necessary to preserve its rights and assets within the bankrupt estate.

The bankruptcy court is the only one competent to hear all lawsuits involving the bankrupt party’s assets, interests and business excluding labor and tax suits. In this regard, all lawsuits, including those excepted here, shall proceed under the trustee. However, the debtor, stakeholders and managers retain the right to intervene in all proceedings in which the bankruptcy estate is a party and may require whatever may be rightful.

It is extremely difficult to precise how long the procedure will take, since it depends on several stages. A liquidation proceeding takes place in two phases: informative and executive. In the informative phase, the bankrupt estate’s assets and liabilities are determined, property and documents are collected, and creditors are determined and classified, culminating in the publication in the general list of creditors. In the executive phase, the debtor’s assets are realized and the liabilities are paid. Once all assets have been realized and the proceeds have been distributed among the creditors, the trustee must submit his or her accounts to the court within 30 days and, after evaluation, a final report is submitted indicating the value of the assets and the payments made to the creditors. Only them the court then issues a judgment concluding the proceeding.

United States Small Flag United States

The following proceedings govern insolvency proceedings in the United States:

  • Liquidation: Chapter 7 governs liquidations and applies to individuals and corporations.  Once a chapter 7 petition is filed and the proceeding is commenced, the automatic stay is immediately triggered, preventing any creditors from taking enforcement actions against the debtor.  Once the case is commenced, the management and board are displaced and a trustee is appointed.  The trustee is charged with marshalling and liquidating the debtor’s assets, but he/she may also continue to operate the debtor’s business for a period of time if it is in the best interests of the estate and is consistent with an orderly liquidation.  After providing notice to all creditors, the trustee will also convene a meeting of creditors, assess and liquidate assets and distribute them to creditors.  The length of time it takes to complete a chapter 7 liquidation depends on the assets and liabilities of a given debtor and the complexity of the liquidation and distribution.
  • Municipal reorganization: Chapter 9 governs municipal bankruptcies (states and the federal government may not file under chapter 9).  In order to file, the municipality must (i) be authorized under state law to file, (ii) be insolvent, (iii) desire to effect a plan to adjust its debt and either (a) have obtained an agreement with creditors holding at least a majority in amount of claims in each class that the entity intends to impair and have negotiated in good faith or demonstrated that negotiations are impractical or (b) believes that a creditor may attempt to obtain a transfer that is avoidable as a preferential transfer.  The commencement of a chapter 9 proceeding also triggers the automatic stay but is much broader for a chapter 9 debtor and applies to actions or proceedings against officers or inhabitants of the municipality.  Under chapter 9, a plan of arrangement is confirmed which is similar to a chapter 11 plan, but has some notable differences including that the absolute priority rule does not apply because a municipality does not have shareholders.  
  • Reorganization of corporations and individuals: Chapter 11 governs voluntary reorganization, focusing on the continued operation rather than the liquidation of the entity.  Generally, the entity continues to operate as a debtor-in-possession, with the goal of ultimately restructuring its pre-petition obligations in order to emerge from bankruptcy with a stronger balance sheet and more manageable obligations.  The ultimate goal is the approval of a chapter 11 plan, which, during the first 120 days, the debtor has the exclusive right to propose (and may be extended for another 18 months).  The length of time varies considerably depending on the  complexity and size of the case. 
  • Restructuring debt of farmers and fisherman: Chapter 12 governs “family farmers” or “family fishermen” with “regular annual income.”  Chapter 12 is a more streamlined process than chapter 11 or chapter 13 in order to address the specific needs of family farmers or fishermen and to allow them to propose a plan and make installments to creditors over three to five years. 
  • Restructuring debt of individuals: Chapter 13 governs individuals, allowing those with income to develop a plan to repay his or her debts, usually on a timeline of three to five years depending on the debtor’s median income, and in no event longer than five years.  While undergoing the repayment process, the law prohibits creditors from pursuing collection efforts. 
  • Cross-border insolvencies: Chapter 15 governs cross-border insolvencies and largely implemented the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on Cross-Border Insolvencies (the “Model Law”) into domestic law, with the aim of providing a simplified process for the recognition of insolvency proceedings initiated in a different country.  Once commenced, the chapter 15 proceeding allows the debtor to seek the protection of the automatic stay, thus protecting any assets located in the territorial jurisdiction of the U.S.      

Czech Republic Small Flag Czech Republic

The Insolvency Act provides for two types of proceedings for corporations: liquidation bankruptcy and reorganization proceedings. Liquidation bankruptcy is the default procedure for business companies which do not qualify for reorganization procedures or with respect to which the creditors voted for the application of a liquidation bankruptcy procedure.

Liquidation bankruptcy (in Czech: konkurs) predominantly aims to sell off the property of the debtor and distribute the proceeds of the sale to creditors. As of the date of the court decision on the commencement of liquidation bankruptcy proceedings, the debtor is not allowed to dispose of the assets of the estate and all powers pass to the insolvency trustee. The trustee is supervised by the insolvency court and by the creditors’ committee. Liquidation bankruptcy ultimately ends with the liquidation of the insolvent company and usually lasts between two to four years. Creditors may decide at the creditors meeting whether the debtor’s assets should be sold by the insolvency trustee per partes or as a going concern. The trustee is bound by the creditors’ decision. During liquidation bankruptcy, the insolvency trustee regularly reports to the insolvency court and the creditors’ committee on the status of the sale of the debtor’s assets. Creditors may instruct the insolvency trustee to prepare a special report on the status of the sale. At the end of the liquidation bankruptcy proceedings, the insolvency trustee prepares a so-called Final Report, in which they summarize what the proceeds of the sale are and how these are to be distributed among creditors. The Final Report is reviewed by the insolvency court and is published. Creditors are allowed to comment on the Final Report, and their comments are heard by the insolvency court.

Within reorganization (in Czech: reorganizace) the debtor or the creditors prepare, and the creditors approve and the insolvency court confirms, a reorganization plan pursuant to which the debtor is restructured and the creditors’ claims are satisfied. The debtor continues to operate the company as debtor in possession. Reorganization usually lasts between one year to three years. For more info about reorganization proceedings, please see Section 8 below.

Cayman Islands Small Flag Cayman Islands

Insolvency proceedings in the Cayman Islands are generally subject to the supervision of the Cayman Court. The main processes are as follows:

  1. Liquidation (Official and Voluntary);
  2. Provisional Liquidation (see section 8 below); or
  3. Scheme of arrangement (see section 8 below). (Although not an insolvency proceeding per se, schemes may be used within or outside an insolvency proceeding for the purpose of achieving a compromise with creditors or shareholders.)

Official Liquidation
A company is placed into official liquidation upon the making of a court order for the appointment of liquidators. Official liquidators will act as officers of the court and their primary duty will be to collect in the company's assets and distribute them pari passu to the company's creditors in accordance with the statutory waterfall of payments, with any surplus assets available for distribution to the company's shareholders.

The powers of directors will cease upon the appointment of official liquidators, who will control the company's affairs, subject to the Cayman Court's supervision.

On the making of a winding-up order, an automatic stay is imposed prohibiting any suit, action or other proceeding from being proceeded with or commenced against the company without the leave of the Cayman Court and any rights of action against the company are converted into claims in the liquidation proceedings. Notwithstanding the making of a winding up order, a secured creditor is not prohibited from enforcing any valid security interest.

The length of the liquidation process varies on a case by case basis and will largely depend on the nature and complexity of the company's business and the issues required to be dealt with in order to allow a liquidator to wind up a company's affairs. There is no timeframe within which a liquidation must be completed.

Voluntary Liquidation
Although not technically an insolvency procedure, the Cayman Islands Companies Law (2018 Revision) (the "Companies Law") also provides a mechanism by which a company incorporated in the Cayman Islands may be wound up voluntarily by an ordinary resolution of its members if it is unable to pay its debts as they fall due.

The voluntary liquidator must apply to the Cayman Court for an order bringing the voluntary liquidation under the Cayman Court's supervision unless within 28 days of the commencement of the voluntary liquidation, the directors swear a declaration of solvency stating that the company will be able to pay its debts in full (with interest) within a period not exceeding 12 months after the commencement of the liquidation. If a supervision order is made, the liquidation will thereafter proceed in the same manner as an official liquidation.

Japan Small Flag Japan

There are two options for court liquidation for insolvent companies: bankruptcy proceedings (hasan) and special liquidation proceedings (tokubetsu-seisan), the latter being more flexible than the former. Special liquidation proceedings allow a director or an officer of the company to be the liquidator to execute the liquidation, while bankruptcy proceedings require a court-appointed trustee to execute the liquidation.

Because of the nature of bankruptcy as liquidation, the main role of a trustee and a liquidator is to realise and distribute the debtor’s assets rather than to continue its business. However, a trustee may operate the debtor’s business to the extent necessary and appropriate to sell the debtor’s assets at maximum value.

Both a trustee and a liquidator are subject to court supervision. For example, the court may on its own motion or upon a petition by an interested party remove a trustee or a liquidator if it finds that he/she is not administering the debtor’s assets appropriately. In addition, some activities of a trustee or a liquidator are subject to the court’s approval. Such activities include (but are not limited to):

  • the transfer of real property rights;
  • the borrowing of money;
  • the filing of an action; and
  • the waiver of a right.

According to court statistics, more than 90% of bankruptcy proceedings are completed within one year and it is rare to take more than two years to complete. No statistics are available for special liquidation proceedings but the period within which to complete them is generally similar to that of bankruptcy proceedings. In 2016, there were 71,838 bankruptcy proceedings (including those for individuals) and 292 special liquidation proceedings initiated.

Singapore Small Flag Singapore

A company may be wound up either voluntarily, or upon the application of one of its creditors. Upon the appointment of a liquidator, the former directors cease to have any control over the company, and usually play little part in the liquidation process.

Once the winding-up order has been made, the Court plays little part in the liquidation process. Instead, the actions of the liquidator are usually supervised by a committee of inspection consisting of creditors and contributories of the company. The length of a liquidation depends on many factors and is difficult to predict, especially if there are cross-border issues or if litigation is necessary to recover assets.

British Virgin Islands Small Flag British Virgin Islands

The main insolvency procedure available in the BVI is liquidation. Although the IA contains provisions for administration, these have not yet been brought into force.

As touched on above, the company, a creditor, a member, a supervisor of a creditors’ arrangement in respect of the company, the Financial Services Commission, or the Attorney General may apply to the court for the appointment of a liquidator on the bases—

  1. that the company is insolvent,
  2. that it is just and equitable to appoint a liquidator, or
  3. that liquidation is in the public’s interest.

If a member wishes to apply for the appointment of a liquidator on the insolvency ground, they must first seek the leave of the court, which must be satisfied that there is a prima facie case that the company is insolvent.

The court may make an order appointing a liquidator on the just and equitable ground in a variety of circumstances, including where the company was created for the purposes of fraud, or even where there is a pressing need to investigate the company’s affairs.

In In re Pacific Andes Enterprises (BVI) Limited BVIHC (COM) 132 of 2016, unreported (1 December 2016), the BVI court had to consider what weight to attach to the differing views of creditors when determining a number of contested applications for the appointment of a liquidator. The case concerned a number of companies in the Pacific Andes group, and the principal creditor opposing the applications was the companies’ parent company, Richtown Development Limited, which also happened to be the companies’ biggest creditor. Richtown opposed the applications on the ground that there were prospects of restructuring the companies’ debts so as to avoid liquidation. Giving judgment in the Commercial Division of the BVI High Court, Davis-White J noted that although when there is no opposing creditor, the applicant is often regarded as being entitled to the order ex debito justitiae, if there were opposing creditors the court will listen to the views of the class, as it would regard the creditors as being best placed to evaluate their own interests. Referring to the English case of Re P&J Macrae [2016] EWHC 2175 (Ch), he said that where the views taken on each side are both proper views that can be properly taken, the court is likely to go with the majority, though this will not always be the case.

The judge concluded that the views of the creditors seeking the liquidation order were reasonable, and it was therefore necessary to look at the opposing creditors and consider the grounds of opposition. He concluded that the proposed plan of restructuring was wholly unclear, and Richtown had not established that the restructuring would benefit the creditors of the company compared with their position on liquidation. There was also no indication as to what support there was for the proposed restructuring. Richtown was the main creditor, but it was the holding company of the debtor and there was no suggestion that it had received or acted upon professional advice in deciding whether or not to oppose the application. Taking account of the decision in Lummus Agricultural Services Ltd [1999] BCC 953 (in which Park J held that where the creditors who opposed an application were not independent outsiders but were associated with the company and its directors, the judge was entitled to discount their views), Davis-White J decided to discount entirely the views of Richtown. The consequence was that the majority of the creditors supported the application; accordingly, he ordered the appointment of liquidators over the companies.

Richtown Development Limited (in provisional liquidation) v Parkmond Group Limited (in liquidation) BVIHC (COM) 55 of 2017, unreported (10 May 2017) was a related case. The liquidators of Parkmond (one of the Pacific Andes group of companies referred to above) had applied for the appointment of a liquidator on the insolvency ground and the just and equitable ground. Parkmond obtained an order appointing provisional liquidators over Richtown, the group parent company, and Richtown applied to set that order aside.

Kaye J, giving the judgment, stated that when the court is considering whether or not to appoint provisional liquidators, it must be satisfied that a winding-up order will probably be made at the final hearing, because the seriousness of the relief may cause the company in question to fail. Richtown, however, was not a trading company, so the question of harm to the business was mitigated. The judge found that it was more likely than not that Richtown would be shown to be insolvent. Kaye J also expressed concern that the affairs of Richtown were not being conducted properly, and the provisional liquidators’ activities had not disproved this. As such, Kaye J found that Parkmond had a good arguable case on both grounds and that the appointment of provisional liquidators was necessary for the purpose of maintaining the value of assets, particularly as Richtown appeared to be the treasury company of the Pacific Andes group.

In a subsequent judgment in the same case delivered on 2 June 2017 (sub nom Parkmond Group Limited v Richtown Development Limited), the BVI Commercial Court considered when an application for the appointment of a liquidator on the just and equitable ground may be granted. The liquidators of Parkmond applied for an order putting Richtown into liquidation. The liquidators asserted that Richtown owed Parkmond US $12.549 million, and consequently claimed that Richtown was unable to pay its debts and was therefore insolvent. In addition, the liquidators argued that Richtown had been so mixed up in intra-group fraud that it was necessary to wind the company up on the just and equitable ground.

The judge found that Richtown was insolvent, but in addition said that even if he was incorrect in that regard, it was just and equitable to wind the company up in any event. He noted that it was sufficient to grant an application on the just and equitable ground to find that the company’s affairs were being conducted in an improper manner. He did not feel that he was able to make a finding of fraud; however, the directors of Richtown had failed to comply with repeated requests from the liquidators of Parkmond for information regarding group finances and had failed to comply with orders for the production of specific documents. He found that the directors had not complied with their duty to maintain records sufficient to show and explain the company’s transactions and enable them to determine the financial position of the company. It was this failure that had given rise to the suspicion of fraud, and this constituted sufficiently serious misconduct on the directors’ parts to make it just and equitable to liquidate the company.

The BVI courts will exercise insolvency jurisdiction over a company registered in the BVI as of right, even if the company does not have any assets in the BVI or has the its centre of main interests in another jurisdiction.

If a court grants an application to appoint a liquidator, it will usually appoint the liquidator proposed by the applicant, though the company’s creditors may vote to replace the court-appointed liquidator at the first creditors’ meeting. Directors’ powers, functions, and duties cease on the appointment of a liquidator, save to the extent they are permitted by the IA or authorised by the liquidator. Additionally, the members of a company may collectively resolve to put the company into liquidation without the need for an application to court by passing a qualifying resolution.

Liquidations are conducted by the liquidator, though the liquidator must report to a committee of creditors, except in certain circumstances where the liquidator concludes that there is no real prospect of a distribution. The court exercises a supervisory jurisdiction and it is common for the order appointing the liquidator to require the liquidator to seek the court’s sanction before exercising certain powers such as compromising claims and entering into arrangements with the body of creditors.

The liquidator’s statutory duties are to gather in and preserve the company’s assets, to decide on claims, to make distributions in accordance with the statutory priorities, and to distribute any surplus to the company’s members. At the conclusion of the liquidation, the liquidator will apply to the court for release, and the company will be dissolved.

The BVI courts tend to hear commercial matters quickly and efficiently. It is possible to petition the court for a winding-up order and obtain the appointment of provisional liquidators within 24 to 48 hours, if the matter is very urgent. The order will be issued at the time of the hearing unless the decision is reserved. If judgment is reserved, it is typical for a decision to be given within a matter of days if very urgent, or two to three weeks.

In contested liquidations, it is possible to arrange a hearing very quickly if the matter is very urgent and if there would be significant consequences arising for one or more of the parties if the hearing were to be delayed.

In cases where no provisional liquidator is sought, the time between filing the initial application and the first hearing of the petition is generally around three weeks, to permit time for service of the application, advertisement of the hearing, and other formal steps in relation to which there are specific time requirements.

Denmark Small Flag Denmark

• What insolvency procedures are available in the jurisdiction?
There are two types of in-court insolvency procedures in Denmark; restructuring and insolvency.

The purpose of restructuring is to obtain an arrangement with the creditors, transfer a business or a combination or wind down operations in cooperation with the former management.

The purpose of an insolvency procedure is to sell the debtor’s assets with a view to distributing the seller’s assets between the creditors.

• Does management continue to operate the business and / or is the debtor subject to supervision?
In respect of restructuring proceedings, the management continues to operate the business together with a restructuring administrator appointed by the insolvency court. The management must not make important decisions without the consent of the restructuring administrator.

In certain circumstances, the restructuring administrator may take over the management.
When the insolvency order has been issued, the management is deregistered and subsequently the trustee takes over the management of the business.

• What roles do the court and other stakeholders play?
In restructuring proceedings, the proposed solution must be presented to the creditors for their approval. If the proposed solution is not accepted by the creditors, insolvency proceedings will be commenced against the debtor.

In insolvency proceedings, the trustee has the full decision-making power and may consequently deal with the assets of the estate without the consent of the creditors.

In respect of restructuring proceedings as well as insolvency proceedings, the insolvency court is the supreme authority and is not to approve transactions but is only to ensure that the administration is in accordance with the Danish Insolvency Act.

• How long does the process usually take to complete?
A restructuring process may take up to 12 months at which time a restructuring proposal is to be voted on. The restructuring administration usually takes 2-6 months.

There is no specific timeframe for the administration of an insolvent estate but it is typically 1-2 year. In case of particularly complicated estates or if legal proceedings are conducted, the administration may take considerably longer.

China Small Flag China

Bankruptcy procedures available in China include liquidation, restructuring and settlement. In a liquidation or settlement procedure, the administrator takes over the debtor; while in a restructuring procedure, upon the approval of the court, the debtor may manage its own assets and operate its business under supervision of the administrator, who is nevertheless still in charge of the debtor. Bankruptcy procedures are judicial proceedings subject to the direction and supervision of the court. The administrator is appointed by and report to the court and performs its duties in accordance with law under supervision of the creditors’ meeting and the creditor committee. Creditors exercise their rights via the creditors’ meeting or the creditor committee, but the establishment of the creditor committee is contingent on the decision made at the first meeting of creditors. Certain personnel of the debtor are obliged to provide cooperation in the procedures. In the case where the creditors file for liquidation of the debtor, the capital contributors of the debtor have the right to request for restructuring of the debtor, and if the proposed restructuring plan involves adjustment of the interests of the capital contributors, they are entitled to vote on such plan. Chinese law does not prescribe a specific time limit for hearing a bankruptcy case, but in practice, some courts have set their own one-, two- or three-year limit based on the complexity of bankruptcy cases. For simple bankruptcy cases involving a small amount, some courts have adopted a six-month summary procedure on a trial basis.

Australia Small Flag Australia

There are 3 formal insolvency procedures that operate in Australia:

(a) Voluntary administration;
(b) Liquidation; and
(c) Receivership.

Each of the formal processes, other than receivership, has a moratorium in place to prevent unsecured creditors (including shareholders) from enforcing their rights. Whilst no such moratorium exists in receivership, to the extent an unsecured creditor takes action to enforce its rights, it has no recourse to the assets which are secured and in the control of the receivers.

Voluntary administration

Voluntary administration is a creditor driven process, and whilst designed to be short and temporary, can last for months, if not years in complex situations.

Upon appointment, the administrator takes control of the company’s business, affairs and property. The administrator has extensive powers and is entitled to perform any function and exercise any power the company or its officers would otherwise perform. In performing this function, the administrator will be acting as the company’s agent. Administrators are granted a right of indemnity out of the company’s property (other than property the subject of retention of title arrangements that are subject to a perfected PPSA security interest).

The purpose of the voluntary administration process (outlined in Part 5.3A of the Corporations Act) is to either:

(a) maximise the chances of the company, or as much as possible of its business, continuing into existence; or

(b) result in a better return for the company’s creditors and members than would result from an immediate winding up, if it is not possible for the company or its business to continue to exist.

In practice, administrators tend to recommend or adopt one of three strategies; a simple sale of business and assets, a move to liquidation or a recapitalisation plan (effected through a deed of company arrangement). The latter two strategies require the approval of creditors (by 50% of those creditors voting in number and value).

Liquidation

In Australia, a company may be wound up:

  • if solvent, voluntarily by its members (members’ voluntary liquidation); or
  • if insolvent, by its creditors (creditors’ voluntary liquidation); or
  • compulsory order of the court.

Upon appointment, a liquidator will assume control of the company’s affairs and has the power to realise and distribute assets to the exclusion of the directors and shareholders. A provisional liquidator will also control the affairs of the company to the exclusion of the directors and shareholders.

Court involvement is required in a compulsory winding up, where it will appoint the liquidator. It will also consider applications by the liquidator, pursuant to section 480 of the Corporations Act, for an order that the liquidator be released and that the company be deregistered after the liquidator has realised all of the property of the company or so much of that property as can, in his or her opinion, be realised without needlessly protracting the winding up, has distributed a final dividend (if any) to the creditors, has adjusted the rights of the contributories among themselves and made a final return (if any) to the contributories. The court must be satisfied that no creditor will be adversely affected by the order.

The length of a liquidation process will vary depending on the company and how complex the business and affairs of the company are. Other factors that will affect the length of the liquidation include whether litigation is necessary to recover funds/assets belonging to the company. For a small company, with uncomplicated affairs, the winding up can be usually completed between 12 to 18 months. Where the company has more complicated affairs and is the subject of litigation, the winding up can take some time.

Belgium Small Flag Belgium

Bankruptcy

At 0:00 hours on the day of the court order opening the bankruptcy, the management and administration powers will be taken over by a bankruptcy trustee. The directors must comply with any request of the bankruptcy court and/or trustee.

The court appoints a judge-commissioner, who will supervise the trustee, approve certain transactions and report to the court. The court usually only intervenes upon request of the trustee (who has very broad powers, and must realize all assets and distribute the proceeds amongst the creditors), e.g. to approve a temporary continuation of the business or decide upon a contested creditor claim. Depending on the complexity, a bankruptcy procedure usually takes 1-3 years.

In-court reorganization procedure

If the court grants the debtor a stay, the debtor remains in possession. Provided certain conditions are met, the DIP or a third party may request the court to appoint a legal officer or ad hoc director. When granting this request, the court will describe the appointed officer or director’s assignment and duties.

A stay is usually granted for a period of 1-6 months, with an absolute maximum of 18 months (this requires exceptional circumstances).

The Netherlands Small Flag The Netherlands

There are two main types of insolvency proceedings under Dutch law: bankruptcy proceedings and suspension of payments proceedings. Generally, a bankruptcy is aimed at the liquidation of the assets of the debtor for the benefit of his creditors, whereas a suspension of payments primarily serves to provide the debtor temporary relief against pressing creditors with a view to continuity of his business.

The most important effect of the bankruptcy is that the debtor loses the power to dispose of its assets. Only the trustee can dispose of the assets from then on.

In a suspension of payments, the debtor may no longer administer or dispose of his assets without the cooperation, authorisation or assistance of the administrator.

The court opens the bankruptcy proceedings at the application of the debtor or a creditor. At the time the bankruptcy is declared, a trustee (curator) and a bankruptcy judge, whose main task is to supervise the actions of the trustee, are appointed by the court. Furthermore, the court opens the suspension of payments proceedings at the application of the debtor. When a suspension of payments is granted, the court will also appoint a member of the local bar as administrator, and usually also a bankruptcy judge. In principle, the debtor has no control over who the court appoints as administrator or trustee.

Employees and shareholders have a limited role to play in insolvency procedures. If the insolvent debtor is an employer, employment contracts can be terminated by both the trustee and the employee.

There is no set time frame within which bankruptcy proceedings should be concluded. In practice various factors (e.g. complexity of the bankruptcy, agenda of the trustee) are relevant. Bankruptcy proceedings may therefore in practice last between one and several years. Given that a suspension of payments serves to provide the debtor temporary relief against pressing creditors, a suspension may be granted for a maximum period of 18 months and may be extended without limit at the request of the debtor for successive 18 months periods.

United States Small Flag United States

The following proceedings govern insolvency proceedings in the United States:

  • Liquidation: Chapter 7 governs liquidations and applies to individuals and corporations. Once a chapter 7 petition is filed and the proceeding is commenced, the automatic stay is immediately triggered, preventing any creditors from taking enforcement actions against the debtor. Once the case is commenced, the management and board are displaced and a trustee is appointed. The trustee is charged with marshalling and liquidating the debtor’s assets, but he/she may also continue to operate the debtor’s business for a period of time if it is in the best interests of the estate and is consistent with an orderly liquidation. After providing notice to all creditors, the trustee will also convene a meeting of creditors, assess and liquidate assets and distribute them to creditors. The length of time it takes to complete a chapter 7 liquidation depends on the assets and liabilities of a given debtor and the complexity of the liquidation and distribution.
  • Municipal reorganization: Chapter 9 governs municipal bankruptcies (states and the federal government may not file under chapter 9). In order to file, the municipality must (i) be authorized under state law to file, (ii) be insolvent, (iii) desire to effect a plan to adjust its debt and either (a) have obtained an agreement with creditors holding at least a majority in amount of claims in each class that the entity intends to impair and have negotiated in good faith or demonstrated that negotiations are impractical or (b) believes that a creditor may attempt to obtain a transfer that is avoidable as a preferential transfer. The commencement of a chapter 9 proceeding also triggers the automatic stay but is much broader for a chapter 9 debtor and applies to actions or proceedings against officers or inhabitants of the municipality. Under chapter 9, a plan of arrangement is confirmed which is similar to a chapter 11 plan, but has some notable differences including that the absolute priority rule does not apply because a municipality does not have shareholders.
  • Reorganization of corporations and individuals: Chapter 11 governs voluntary reorganization, focusing on the continued operation rather than the liquidation of the entity. Generally, the entity continues to operate as a debtor-in-possession, with the goal of ultimately restructuring its pre-petition obligations in order to emerge from bankruptcy with a stronger balance sheet and more manageable obligations. The ultimate goal is the approval of a chapter 11 plan, which, during the first 120 days, the debtor has the exclusive right to propose (and may be extended for another 18 months). The length of time varies considerably depending on the complexity and size of the case.
  • Restructuring debt of farmers and fisherman: Chapter 12 governs “family farmers” or “family fishermen” with “regular annual income.” Chapter 12 is a more streamlined process than chapter 11 or chapter 13 in order to address the specific needs of family farmers or fishermen and to allow them to propose a plan and make installments to creditors over three to five years.
  • Restructuring debt of individuals: Chapter 13 governs individuals, allowing those with income to develop a plan to repay his or her debts, usually on a timeline of three to five years depending on the debtor’s median income, and in no event longer than five years. While undergoing the repayment process, the law prohibits creditors from pursuing collection efforts.
  • Cross-border insolvencies: Chapter 15 governs cross-border insolvencies and largely implemented the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on Cross-Border Insolvencies (the “Model Law”) into domestic law, with the aim of providing a simplified process for the recognition of insolvency proceedings initiated in a different country. Once commenced, the chapter 15 proceeding allows the debtor to seek the protection of the automatic stay, thus protecting any assets located in the territorial jurisdiction of the U.S.

France Small Flag France

  • Reorganisation proceedings (redressement judiciaire)

When a company is insolvent and its recovery appears possible, its management, any unpaid creditor or the public prosecutor may apply for the opening of a judicial reorganisation.
The court opens a six-month “observation period” (which is renewable up to 12 months and exceptionally up to 18 months upon request of the public prosecutor) during which the debtor will negotiate with its creditors a waiver of debt or rescheduling. During the observation period, a judicial administrator will be in charge of assisting the management of the debtor’s business. The administrator may also be empowered by the court to take over the management and control of the debtor.
At the end of the observation period, the judge will make an order for (a) the continuation of the business through a reorganisation plan which must be adopted by the creditors in the same conditions as for the safeguard; (b) the sale of all or part of the debtor’s assets through a sale plan; or (c) if the latter fails, the progression into a liquidation proceeding.

  • Judicial liquidation proceedings

Liquidation is the appropriate remedy when the company is insolvent and its reorganization or rescue appears obviously impossible. It may be initiated by the debtor, any unpaid creditor or the public prosecutor. The purpose of such a proceeding is to liquidate a company by selling it as a whole or each branch of activities or asset one by one. In order to request the court to open an immediate liquidation proceeding, the debtor must show evidence that its recovery is hopeless and obviously impossible. The court may order the immediate liquidation of the debtor’s assets and will appoint a liquidator to replace the debtor in its management and proceed with the sale of the assets (private sale or auction). However, when it seems possible that all or part of the business has the chance to be sold to a third party, then the operation of the company will continue temporarily for up to four months.

Luxembourg Small Flag Luxembourg

The bankruptcy proceedings (faillite) are the most common proceedings filed against commercial companies in Luxembourg. These proceedings aim at winding-up a company's assets in the best interests of the estate and its creditors.

Once a bankruptcy procedure is opened, the directors/managers are removed from their functions and a bankruptcy receiver is appointed by the court to manage the bankruptcy estate. The receiver is responsible for realising the debtor's assets and distributing the proceeds to the creditors, under the supervision of a supervisory judge (juge-commissaire). Creditors have no control over the procedure and the appointment of the receiver or its actions.

Individual legal actions by privileged and unsecured creditors against the debtor are suspended once the company has been declared bankrupt. Creditors must file a proof of claim with the court, nevertheless, "bankruptcy proof" secured creditors (for example, security receivers/assignees for security purposes under the Financial Collateral Law and mortgagees) can freely take enforcement action regardless of the bankruptcy proceedings.
Bankruptcy proceedings are concluded by a judgment closing the proceedings.
The procedure typically lasts between one and three years but can be significantly longer, depending on the complexity of the case.

New Zealand Small Flag New Zealand

Liquidation

Liquidation is a statutory winding up process which can be initiated by the company’s shareholders, directors or by the Court (on the application by, among others, creditors if the Court is satisfied the company is unable to pay its debts).

Liquidation involves the realisation and distribution of a company’s assets in order to meet the claims of creditors. Liquidators are appointed and operate in accordance with Part 16 of the New Zealand Companies Act 1993. The commencement of liquidation brings about a moratorium on proceedings against the company or (with exceptions for secured creditors) its property.

Once appointed, the liquidator takes over the management of the company, realises its assets, pays its creditors and distributes the balance (if any) to the company’s shareholders. A liquidator has limited powers to carry on the business of the company. A liquidator is able to challenge insolvent transactions, or transactions at undervalue, terminate certain contracts, disclaim onerous property, compromise claims and sell the company’s assets and/or business. A liquidator is an officer of the Court, and is subject to supervision of the Court. There is no prescribed timeframe within which a liquidation must be completed.

Secured creditors generally stand outside the liquidation process and are entitled to separately realise their secured property. To the extent there is a shortfall, the secured creditor can claim in the liquidation as an unsecured creditor for that shortfall. Similarly, if there is a surplus after realisation the secured creditor must account to the liquidator for that surplus.

After realising the company’s assets, the liquidator must apply the proceeds towards their own fees and expenses, followed by paying preferential creditors (generally in the nature of employee payments and taxes) and then general unsecured creditors. Each creditor will share in the proceeds proportionately.

Receivership

In New Zealand, receivership is the most common form of enforcement procedure in respect of insolvent entities who have granted security over their assets. Receivership is initiated by a secured party in relation to some or all of the assets of the entity over which that secured party holds a security interest. The right to appoint receivers, and the scope of a receiver’s powers, are generally a matter of contract under the terms of the relevant security agreement. The appointment and conduct of receivers is also regulated by the New Zealand Receiverships Act 1993 and the common law.

The appointment of a receiver does not create a moratorium in relation to the debtor or its assets, and other creditors can continue to enforce their rights and remedies against the debtor or its assets subject to the prior ranking rights of the secured creditor.

A receiver has the right and power to manage the business and to realise the assets of the debtor in receivership. On appointment of a receiver, the directors of a debtor company remain in office but cease to have the power to manage and control the debtor company's assets. A receiver is the agent of the debtor in receivership (unless provided otherwise in the security agreement) and can contract on the debtor's behalf. The appointing secured creditor should not instruct or direct the receiver, however the secured creditor retains the right to dismiss and appoint an alternative receiver. The debtor in receivership retains ownership and possession of the security property. All pre-receivership contracts remain on foot (subject to any termination provisions set out in the individual contracts as discussed further in question 12 below).

A receiver is under a statutory duty to act: (i) in good faith and for a proper purpose; and (ii) must exercise his/her powers in the best interests of the appointing secured creditor. To the extent consistent with those duties, a receiver must exercise his/her powers with a reasonable regard to the insolvent company, others claiming an interest in the receivership property, unsecured creditors and guarantors of the insolvency company. Receivers are subject to Court supervision, and may seek directions from the Court as to the extent of a receiver's rights, powers and obligations.

The receiver owes residual duties to the debtor, its sureties, unsecured creditors and shareholders to have reasonable regard to the interests of those persons.

Statutory management

A statutory manager may be appointed to a New Zealand company pursuant to the New Zealand Corporations (Investigations and Management) Act 1989. Statutory managers are only very rarely appointed in cases of corporate insolvency.

Statutory managers are appointed where it is considered by the New Zealand Financial Markets Authority that the company is acting fraudulently or recklessly or that it is necessary to protect the interests of shareholders or creditors, or for any other reason in the public interest and such interests cannot be adequately protected in another way.

While a company is under statutory management, there is a moratorium which prevents any
proceedings or enforcement action being taken or continued by any person (including secured creditors) against the corporation without the statutory manager’s consent. There is also a prohibition on the transfer or removal of any assets of the company without the statutory manager’s consent.

A statutory manager has broad powers to manage and carry on the business of the company, challenge insolvent transactions, terminate certain contracts, disclaim onerous property, compromise claims and sell its assets and/or business.

A statutory manager is also entitled to suspend, in whole or in part, the payment of any debts or the discharge of any obligation. There is no limit on the period during which the moratorium or suspension may continue.

Voluntary administration – (as discussed further in Question 8)

As discussed further in Question 8, the New Zealand Companies Act 1993 provides for the appointment of a voluntary administrator to an insolvent company (or a company that may in the future become insolvent).

The New Zealand voluntary administration regime is generally modelled on the equivalent Australian regime and the relevant provisions of the New Zealand Companies Act are substantially the same as the equivalent provisions under Australian law.

Voluntary administration is intended to maximise the chances of a company (or its business) continuing in existence or, if that is not possible, providing a better return for creditors than immediate liquidation.

A company can be placed into voluntary administration by its directors, a liquidator, a secured creditor who has a security interest over substantially the whole of the company’s property or the Court on the application of a creditor or certain others.

On the appointment of an administrator a moratorium on enforcement action commences such that creditors cannot take steps to enforce any debts or security against the company without the consent of the administrator or the leave of the Court. The moratorium does not apply to secured creditors who hold a security interest over all or substantially all of the company’s assets, if those creditors elect to enforce their security interest within the 10 working days after the company goes into administration. Nor does the moratorium apply to secured creditors who have already taken steps to enforce the security interest prior to the administration.

During the administration, the administrator has control over the company’s business and property (except for company property in respect of which a secured creditor has appointed a receiver). The administrator can manage and dispose of any business or property and can perform any function and exercise any power on the company’s behalf that the company could perform if it were not in an administration. Administrators are subject to Court supervision, and can seek directions as to the extent of their rights, powers and obligations.

The moratorium will expire when the creditors vote (at the ‘‘watershed meeting’’) to return the company to its directors, to appoint a liquidator or to execute a deed of company arrangement (DOCA). The watershed meeting must be held within 25 working days after the commencement of the administration (or longer if the Court has approved an extension to the convening period). If a DOCA is approved by a majority in number representing 75% by value of creditors it is binding on all unsecured creditors, as well as on secured creditors who have voted in favor of the DOCA.

Creditors Compromise

As discussed further in Question 8, a creditors’ compromise is a binding arrangement between an insolvent company and its creditors concerning payment of the company’s debts other than in accordance with the strict legal rights of those creditors.

The compromise may involve the suspension or deferral of payments, the acceptance of a
lesser sum as full and final settlement or instalment arrangements, or the conversion of debt into equity.

Compromise arrangements are made under Part 14 of the New Zealand Companies Act 1993. The
directors, a receiver or a liquidator may propose a compromise as of right, and a creditor or a
shareholder may propose a compromise with the leave of the Court. Part 14 requires a distinction to be made between classes of creditors. Although each class of creditors vote on the proposal separately, the resolution must be the same for each class. Each class must approve the proposal by a majority in number and by 75% in value of creditors who voted in that class (there is no ability to cram down dissenting classes). Unless a proposal provides otherwise, the approval of the compromise is conditional upon all classes voting in favor of the proposal.

A compromise once approved by the required majority of creditors, will bind all creditors to whom notice of the compromise proposal was given, including even those that do not agree with it. However, a creditor who voted against the compromise may challenge the compromise by applying to the Court within 10 working days after notice of the result of the voting was given to the creditor. If the Court is satisfied that the compromise is unfairly prejudicial to that creditor or the class of creditors to which that creditor belongs, the Court may make an order that the creditor is not bound by the compromise.

Until the compromise is approved, there is no moratorium on creditors taking enforcement steps against the company.

Schemes of Arrangement

As discussed further in Question 8, creditors claims may also be varied or compromised via a Court-approved scheme of arrangement under Part 15 of the New Zealand Companies Act 1993.

Part 15 allows what is in effect a creditors compromise to be approved by the Court outside of the Part 14 process discussed under ‘‘Creditors’ Compromises’’ section above and below in Question 8.

A Court may, on the application of a company or any of its shareholders or creditors, order that a compromise, arrangement or amalgamation be binding on the company and on such other persons or classes of persons including creditors as the Court may specify. Any order may be made on such terms and conditions as the Court thinks fit.

However, as the Court has a duty to ensure that the rights of affected creditors are adequately protected, the Court is likely to order that the creditors vote on the proposed compromise before it considers whether to approve it.

Romania Small Flag Romania

After the date of opening of the insolvency procedure, a period named the observation period follows, in which the official receiver analyses the legal and patrimony situation of the company for determining whether there are real perspectives to rescue the company based on a reorganization plan or if the company should enter into bankruptcy. The opening of a simplified procedure of bankruptcy may be ordered also directly if a series of conditions expressly provided by the law (lack of assets, absence of the reorganization chances) are met. At the same time, the bankruptcy procedure may be opened also as a result of the failure of a reorganization plan. From the date of opening of the insolvency procedure, the statutory management ceases to have powers and duties, and the company will be administered by a special administrator appointed by the shareholders (in exceptional situations and strictly provided by the law, the debtor’s right of administration may be lifted, in which case the company will be administered by the official receiver). Nevertheless, even in the case in which the administration right is not lifted, the official receiver supervises the debtor’s activity. The courts of law have under the law the power to exercise a legality control on the measures taken in the procedure. To this end, interested persons may address to syndic judges for the analysis of the legality of the challenged measures. At the same time, aspects relating to the opportunity of conclusion of certain deeds are under the opportunity control of the creditors summoned by the official receiver in the creditors’ meeting. In terms of period, the law provides that the observation period may not be longer than one year, and if a reorganization plan is proposed, this may be performed for maximum three years, with the possibility to prolong it for another year with the creditors’ consent. In what regards the bankruptcy, so if a reorganization plan is not proposed or the proposed plan fails, the law does not provide for a maximum term in which the procedure must be completed. Thus, a bankruptcy procedure may take as long as necessary for the liquidation of all the assets and recovery of all receivables.

Switzerland Small Flag Switzerland

There are two main types of formal insolvency and restructuring proceedings in Switzerland: bankruptcy (i.e., liquidation) proceedings (Konkursverfahren) and composition proceedings (Nachlassverfahren).

In bankruptcy proceedings, all business activities of the insolvent debtor are generally discontinued and the management can no longer validly act on behalf of such debtor. All acts necessary in the context of the bankruptcy proceedings are subsequently carried out by the competent bankruptcy authorities and the receiver in bankruptcy. In contrast, an insolvent debtor may generally continue its business in the context of composition proceedings. While the executive bodies continue to be in charge of business operations, the insolvent debtor is typically placed under supervision by an administrator who needs to approve certain transactions and can issue instructions of both general and specific nature. The court can further limit the management rights of the insolvent debtor.

The opening of both proceedings must be ordered by the court. The court's further involvement in bankruptcy proceedings is generally limited whereas its role is more prominent in composition proceedings where a number of actions and procedural steps must be approved or granted by the court. Creditors benefit from various rights in both types of proceedings, including inspection rights, rights to challenge certain acts of the insolvency practitioner and participation rights at court hearings.

The duration of insolvency proceedings largely depends on the complexity of the case. Composition moratoria which are terminated due to a successful restructuring will typically take considerably less time (anywhere between a few months and two years) than bankruptcy proceedings in relation to large companies which involve numerous jurisdictions and entail a variety of complex legal issues (which may easily last up to five years or longer).

Where a debtor is over-indebted, restructuring may also be pursued by way of a corporate moratorium or postponement of bankruptcy (Konkursaufschub) which will also have to be granted by a court. An administrator may be appointed by the court but existing executive bodies generally remain in control of the management of the debtor. The statutory framework for a postponement of bankruptcy is fragmentary. In view of inherent uncertainties, it is not used very often in the German speaking part of Switzerland to restructure corporate debtors. The postponement of bankruptcy is proposed of being abolished within the context of the more general revision of Swiss corporate law referred to under section 3 above.

Israel Small Flag Israel

The Companies Ordinance and the Bankruptcy Ordinance [New Version], 1980 (the "Bankruptcy Ordinance"), include procedures with respect to the commencement of liquidation procedures, appointment of trustees, stay of proceedings, receivership of assets, debt claim filing and approval, creditors meetings, submission and approval of arrangement proposal, foreclosure of collaterals etc.

The Companies Law, refers to the same procedures under an Arrangement proceeding, allowing the continuance of the company's operations, including the ability to raise new debt secured by existing pledged assets or using such assets in other manner, as required for the company's operation; or imposing obligations on certain essential suppliers and third parties to continue providing services, or to abstain from cancelling the contract due to the insolvency even if they are contractually entitled to do so.

In most insolvency cases, a court officer is appointed in order to manage the insolvency proceedings. Where the operation of the company requires a professional team, the court officer may engage such management or continue the engagement of the existing management.

In recent recovery cases, such as the case of Africa Investments (Israel) Ltd. NIS 3 billion debt arrangement, the creditors skipped the appointment of a court officer and receipt of a stay of proceeding order, maintained a close supervision and involvement in the company's affairs, and negotiated independently the terms of the debt arrangement, leading to significant increase of recovery.

Insolvency proceedings can take from a few months in very straightforward debt restructuring case up to several years in more complicated liquidation or assets foreclosure cases.

The new Insolvency Law introduces a new chapter dealing with possible debt arrangement without any court order for the commencement of recovery or re-arrangement proceedings, as already done in practice.

Bermuda Small Flag Bermuda

Liquidation procedures can be divided into compulsory and voluntary liquidations. The purpose of both is to realise assets, pay off creditors, and distribute any remaining assets to the shareholders. The company can then be dissolved and will cease to exist.

Where a company is insolvent, there are two forms of liquidation that will be relevant: compulsory liquidation and creditors’ voluntary liquidation. Both are creditor driven processes whereby the liquidator takes over the company’s management.

The permanent liquidator is typically a chartered accountant in a local firm of accountants. When the company has assets and creditors in foreign jurisdictions, it is usual for the local accountant to be appointed jointly with a chartered accountant from an affiliated firm in the foreign jurisdiction. A liquidator does not need to be a licensed insolvency practitioner nor resident in Bermuda.

Compulsory liquidation
Compulsory liquidation is conducted under the supervision of the Court.

It is initiated by a petition presented to the Court by one of:

  • a creditor, including contingent or prospective creditors;
  • a contributory (that is, any person liable to contribute to the assets of the company if it is liquidated including fully paid shareholders);
  • the company itself (by a directors' resolution);
  • the power of the directors themselves to petition for the compulsory winding up of an insolvent company in certain circumstances has been recognised by the Court (In re First Virginia Reinsurance Ltd. [2003] Bda LR 47).
  • in certain circumstances, the Registrar of Companies (section 163 Companies Act 1981) the Supervisor of Insurance (section 35 Insurance Act 1978) or the Bermuda Monetary Authority (under, e.g., section 36(1)(b) of the Investment Funds Act 2006).

The liquidator of a company in Bermuda is described as a permanent liquidator (in contrast to a provisional liquidator). On appointment, an automatic stay comes into effect staying creditor actions, though secured creditors remain entitled to enforce their security (section 167(4) Companies Act 1981).

Once the liquidator has realised all the company's assets and made distributions to creditors and shareholders, the liquidator must apply for a release from the Court and the company will be dissolved.

Creditor’s voluntary liquidation
There are two types of voluntary liquidation:

  • members’ voluntary liquidation (MVL) under which a solvent company is wound up under the control of shareholders;
  • creditors’ voluntary liquidation (CVL), which applies to an insolvent company and is controlled by creditors of a company.

Whilst a creditors’ voluntary liquidation is controlled by creditors, somewhat incongruously, it must be initiated by the company's shareholders through a resolution, usually based on the recommendation of the board of directors (section 216 Companies Act 1981). Shareholders of the company approve the liquidation by a simple majority vote (unless the company's bye-laws specifically provide otherwise), after which a creditors' meeting must be held within 24 hours. At that meeting, a majority by value of the creditors present and voting appoint the liquidator and may also appoint a committee of inspection and fix the liquidator's remuneration.

The automatic stay on proceedings being commenced or continued against the company does not apply in a voluntary liquidation. However, the Court can consider a liquidator's application to grant such a stay of creditor action.

At the conclusion of the voluntary liquidation, the liquidator must convene final creditors' and shareholders' meetings.

  • CVL: The liquidator must convene final creditors’ and shareholders’ meetings. Within seven days of the meetings, the liquidator must notify the Registrar of Companies of the meetings and provide an account of the liquidation.
  • MVL: the company is deemed to be dissolved following the final general meeting of the shareholders. The liquidator must notify the Registrar of Companies within seven days of the meeting.

Role of stakeholders
Those with an economic interest in the company will have influence during the process. In an insolvent liquidation (whether compulsory or voluntary) the unsecured creditors play a significant role. In a CVL, secured creditors can determine the course of the liquidation through their representatives on the committee of inspection.

In a compulsory liquidation, the liquidator may carry on the business of the company so far as is necessary for its beneficial winding-up and during such period, the liquidator will have the power and authority to supervise those overseeing the conduct of the business on a day-to-day basis. In the case of a voluntary winding up however, the company shall, from the commencement of the winding up, cease to carry on its business, except so far as may be required for the benefit of the liquidation.

Length of process
The length of time the process takes varies greatly depending on matters such as the size and complexity of the company and its debts.

Ireland Small Flag Ireland

There are two forms of formal corporate insolvency proceedings available under Irish law – liquidation and examinership.

Liquidation

There are three forms of liquidation:

  • members’ voluntary liquidation – a solvent winding up commenced by shareholder resolution, however, if it becomes apparent to the liquidator in the course of the winding up that the company is insolvent, he must convert the liquidation into a creditor’s voluntary liquidation;
  • creditors’ voluntary liquidation - an insolvent winding-up commenced by ordinary shareholder resolution where the members have formed the view that the company cannot, by reason of its liabilities, continue to trade – the process is generally initiated by the directors recommending to the members that the company be wound up due to insolvency; and
  • compulsory liquidation – a winding up commenced by Order of the High Court on foot of a petition presented by a creditor, a contributory or by the company itself (having been authorised to do so by its members) – this can be a solvent or an insolvent liquidation but is most commonly initiated by a creditor that has not been paid a debt that is lawfully due.

Save in very limited circumstances, the directors of the company cease to have any powers to deal with the assets of the company, or to have any role in the affairs of the company, with effect from the appointment of the liquidator. If the liquidator decides to continue to trade post-liquidation, he can engage management as employees where this is for the benefit of the winding-up, but that is the liquidator’s decision and the board of directors is nonetheless defunct.

The Court does not have any oversight role with respect to the day to day conduct of a liquidation of a company, including a compulsory liquidation commenced by Court Order. However, a liquidator or any creditor may at any time apply to Court for directions as to the conduct of any liquidation (whether voluntary or compulsory), or for Orders directing parties, such as directors, to co-operate with or provide information to the liquidator concerning the assets or affairs of the company.

In a compulsory liquidation or a creditors voluntary liquidation a committee of inspection may be formed, comprising up to five nominees from the creditors and three nominees of the members, which will exercise day to day oversight with regard to (a) taking of certain actions by the liquidator, including with respect to the commencement of legal proceedings, engaging in a trade post-liquidation, the payment of any class of creditors in full and the settlement or compromise of creditors’ claims. The liquidator's fees are also agreed with the committee of inspection. Finally, the liquidator is obliged to have regard to any directions given by the creditors, contributories or by the committee of inspection with respect to the administration and distribution of the property of the company.

There is no time limit for the completion of compulsory or a creditors’ voluntary liquidation, and it is not unusual for the winding up to take a number of years to complete, depending on the complexity of the affairs of the company concerned.

Examinership

Examinership is a court protection procedure available to a company that is insolvent, or likely to be insolvent, and which can demonstrate that, provided that its debts are restructured and/or it can attract new investment, it has an undertaking that is capable of surviving as a going concern.

In order to avail of the Court's protection for the company, a petition must be filed and presented to the Court by either the company itself, its directors, any shareholder holding more than 10% of the equity, or any creditor. The company will have protection from its creditors (including secured creditors) for a period of up to 100 days whilst the examiner (invariably an insolvency professional) attempts to seek fresh investment for the company and to formulate a scheme of arrangement that has the support of at least 50% plus one in value and number of at least one class of impaired creditor.

A scheme of arrangement will usually provide for (a) the investment of funds from an investor to fund payments to impaired creditors as well as the costs of the examiner, (b) the writing down of creditors’ claims and (c) the transfer of the shareholdings to the investor(s). The Court will not approve a scheme of arrangement unless it is satisfied that it is not unfairly prejudicial to any creditor (which is generally taken to mean that a creditor cannot receive less under the proposed scheme than it would have received in a receivership or liquidation).

The management / board of directors of a company in examinership will remain in place during the period of the moratorium unless the examiner applies to Court for an Order to transfer those powers to him or her.

Generally, creditors with a material sum owing by the company will, if they wish, be a notice party to any motions issued or hearings convened during the period of the examinership. The examiner may also convene a committee of inspection to act as a forum for creditors to voice their views on the conduct of the proceedings.

Receivership

Receivership is not, strictly speaking, a form of formal insolvency proceeding because a receiver is generally appointed by a secured creditor by the exercise of a contractual right to do so, rather than pursuant to any court proceedings. The directors of the company will cease to have any role with respect to assets over which a receiver has been appointed, and if the receiver is also appointed as manager, the receiver can then also assume responsibility for the carrying on of the business of the obligor to the exclusion of the directors.

United Kingdom Small Flag United Kingdom

Where insolvency cannot be avoided, a company will either file for (or be filed for) administration or liquidation (also known as a winding up).

The key insolvency procedure with a view to company rescue is administration. Similar to the US Chapter 11 regime, a company that files for administration has the protection of a statutory moratorium to allow it to be rescued or reorganised or its assets realised. However, unlike in Chapter 11, management lose control of the company to an administrator (who will be an insolvency practitioner and an officer of the court). The administrator will seek to rescue the company as going concern in the first instance, but if that is not possible, the goal of the administration is to achieve the best possible result for creditors. If the administration has not come to an end within a year, the administration will end automatically unless its term is extended in advance.

“Pre-pack” sales are particularly prevalent in the UK, being processes in which the debtor and its creditors conclude a deal to sell the debtor’s business as a going concern on the day of the administrator’s appointment, thereby minimising the period in which the company is subject to insolvency proceedings.

When there is no reasonable prospect of rescuing a company as a going concern, liquidation will generally be the only option. An administration can also be converted into a liquidation whereby the business is wound down and the assets liquidated.

Mexico Small Flag Mexico

The Mexican insolvency law (Ley de Concursos Mercantiles, the “Insolvency Law”) contemplates a single proceeding for reorganization (concurso mercantil) and bankruptcy (quiebra) (the “Insolvency Proceeding”) with two successive stages:

a) Mediation. The first stage, known as the “mediation” stage, is compulsory and is designed to reorganize the insolvent entity (the “Mediation Stage”).

b) Bankruptcy. The second stage, known as the “bankruptcy stage”, provides for the bankruptcy and liquidation of the insolvent entity (the “Bankruptcy Stage”).

During Mediation Stage, the directors or managers of the insolvent entity will remain in their respective positions, and the mediator (conciliador, the “Mediator”) will be in charge of supervising the accounting books and all transactions carried out by the insolvent entity, with the goal of maintaining the insolvent entity as an on-going business.

In order to preserve the estate of the insolvent entity, the Mediator may request the insolvency court (the “Insolvency Court”) to (i) remove directors or managers; or (ii) order the insolvent entity to cease operations. During the Bankruptcy Stage, directors or managers of the insolvent entity will be removed and the insolvent entity will be brought under the management of a receiver (síndico, the “Receiver”) appointed by the Insolvency Court.

The Mediation Stage has a maximum term of 365 calendar days. If a valid reorganization agreement (the “Reorganization Agreement”) has not been reached upon the conclusion of such term, the insolvent entity will be automatically declared in bankruptcy. The Bankruptcy Stage will end upon the sale of the estate of the insolvent entity and the payment of its obligations up to the amount of its estate, as described in our answer to Question 5 below.

Spain Small Flag Spain

The Spanish legal system regulates different insolvency procedures they are been classified according to the following parameters:

Depending on the subject that applies for the DIP, the insolvency procedure shall considered as (art. 22 SIA):

  • Voluntary: when the debtor submits the application for the DIP.
  • Necessary: when who submits the application for the DIP is any creditor.

Depending on the complexity forecast of the insolvency proceeding (art. 190.1 SIA):

  • Abbreviated: when the court considers, from the available information, that the insolvency proceeding does not have special complexity. It will not have special complexity when the following circumstances are met (i) if the submitted by the debtor includes less than 50 creditors, (ii) when the initial estimation of liabilities does not exceed €5 million and (iii) when the valuation of the assets and rights does not reach €5 million.
  • Ordinary: When, from the information available, the insolvency proceeding could be complex and the requisites of the compulsory proceeding are not reached.

Although the company has been involved in an insolvency proceeding, the business shall continue its activity, even during the liquidation phase. Nevertheless, during the common phase, directors or boards of directors will have limited rights of administration and disposal of the assets of the debtor. The business activity shall be supervised by the insolvency administrator (“IA”) (art. 33.1, 13º and 48.3 SIA). Once the liquidation phase is declared, the rights of administration and disposal of the assets of the debtor shall be intervened. Therefore, the unique subject that will be able to administrate and dispose the assets of the debtor will be the IA (art. 33.1.11º, 48.3 and 145 SIA).

In the course of the proceeding, the court shall ensure the compliance of the SIA during the proceeding in order to guarantee the creditor’s rights.

On the other hand, the stakeholders only will take a part in the proceeding, in case that the debtor submits a composition proposal (art. 99 and subsequent SIA), since the stakeholders will have to vote it.

Finally, the duration of the process will depend on the court in which the action is brought and the complexity of the proceedings. However, on average, insolvency procedures last 3 years until finalization of the judicial proceedings.

Portugal Small Flag Portugal

Once a company is in a situation of insolvency, Portuguese Law determines that insolvency procedures must be filed – either by the company itself (through its directors) or by any creditor. The insolvency proceedings can be aimed at enabling payment to the insolvent’s creditors through the execution of an insolvency plan and/or at the liquidation and judicial sale of the insolvent’s assets. If the intention is the restructuring of the company, the debtor must submit an insolvency plan, which is subject to approval by the creditors. If a debtor files for insolvency proceedings and does not submit an insolvency plan, the creditors can decide to close down the company and proceed to liquidation of its assets.

After the insolvency is declared, as a rule the directors remain in office although with limited powers. The debtor’s activity is supervised by a creditors’ general meeting, a creditor’s committee, a court-appointed insolvency administrator and by the court itself, which will have the last say. Directors are obliged to cooperate with these entities.

Updated: June 5, 2018